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財務管理基礎 第13版 教學課件Chap019_PPT.ppt

'財務管理基礎 第13版 教學課件Chap019_PPT.ppt'
Convertibles, Warrants, and Derivatives19Chapter OutlineConverting convertible securities to common stockConvertible securities may move with the value of common stockInterest rates on convertible securitiesWarrantsAccountant requirements of convertibles and warrantsDerivative securities2Convertible SecuritiesA bond or share of preferred stock that can be converted, at the option of the holder, into common stockWhen a convertible debenture is initially issued, a conversion ratio to common stock is specifiedRatio indicates the number of common stock shares of converted debenturesTo get the conversion price, the par value of the bond is divided by the conversion ratio3Value of the Convertible BondMust evaluate the conversion privilegesOther values to be considered include:Conversion valueConversion premiumPure bond valueDownside risksFloor value4Price Movement Pattern for a Convertible Bond5Pricing Pattern for Convertible Bonds Outstanding, January 2008 prices6Is this Fool’s Gold?Drawbacks:Once convertible debentures begin to increase in value, the downside protection becomes redundantIf interest rates in the market rise, the floor value, or the pure bond value, could fall, creating more downside riskPurchaser of the convertible bond normally also pays a premium over the conversion valueThe purchaser is always asked to accept below-market rates of interest on the debt instrumentConvertibles may also suffer from the attachment of a call provision7Advantages to the CorporationInterest rate paid on convertible issues is lowerMay be the only way a small corporation may enter the bond marketAttractive to a corporation that believes its stock is currently undervaluedThe price of a stock may go up if the issuance of common stock or convertibles is delayed by an appropriate time8Disadvantages to the CorporationSize of convertible bond market is small compared to markets for nonconvertible corporate bonds and common stocksFirms selling convertible securities are generally smaller firms growing faster, having small dividend payout ratios which results in small dividend yieldsWhile a few firms that sell convertible bonds may be high quality firms, most are small companies with low credit ratings and high risk9Forcing ConversionCall option provision is used to force conversion when it needs to shift outstanding debt to common stockValue of convertible bonds might go up significantlyImproves composition of company’s balance sheet by decreasing debt-to-equity and debt-to-asset ratio10Successful Convertible Bonds and Preferred Stock Not Yet Called11Method of Forcing ConversionIf the conversion value is above the call price when the bond is called:A discerning investor would take the shares of common stock rather than a cash payoutForcing conversion increases cash flowWhen comparing the current yield to the dividend yield on the common stock:Investors generally do not want to convert unless the dividend yield is higher than the yield。省略部分。= W – IWhereS = Speculative premiumW = Warrant priceI = Intrinsic value20Expectation of Potential ProfitBond investors are willing to accept lower interest rates when warrants are attachedWarrants have a potential value in excess of the higher interest rate on bondsDeclining premium may be due to the speculator losing ability to use leverage to generate high returns as the price of stock goes upThe speculator may also pay a very low premium at higher stock prices because then there is less downside protection21Market Price Relationships for a Warrant22Use of Warrants in Corporate FinanceA straight debt issue may not be acceptableMay be accepted only at extremely high ratesThe same security may be well received if detachable warrants are includedMay be included as an add-on in a merger or acquisition agreementMay be issued in a corporate reorganization or bankruptcy to offer the shareholders a chance to recover if restructuring is successful23Use of Warrants in Corporate Finance (cont’d)May not be as desirable as convertible securities for creating new common stockFirms with warrants have no option of forcing conversion of debt into common stockThe only possible incentive is a step-up in exercise priceWhere a progressively higher option price is paid if warrants are not exercised by a given date24Accounting Consideration with WarrantsAll warrants are included in computing diluted earnings per shareNumber of new shares created by the exercise of warrants must be computed25Derivative SecuritiesValues derived from an underlying securityIn the case of equity options, the value is derived by the underlying common stockFutures contracts on government bonds and Treasury bills derive their value from:Those government securities, and futures contracts on oil or wheat have those commodities as determinants of their basic values26OptionsOptionsA right, but not the obligation, to buy or sell an underlying security at a set price for a given time period, e.g., employee stock optionCall OptionSimilar to employee stock option but usually traded between individual investorsPut OptionAn option to sell securities to the option writer at a set price for a specified time period27FuturesGives the owner the right but not the obligation to buy or sell the underlying security or commodity at a future dateRequires a very small down payment to control the futures contractGuarantees the price for both the seller who might sell the futures contract and the buyer who buysOther futures contracts used to hedge corporate financial strategies are interest rate futures or foreign currency features28Futures (cont’d)One common financial futures strategy is to hedge against interest rate movementsTreasurer can use a financial futures contract to either lock in a rate or profit from an increase in ratesIf rates go up, treasurer can take the profit on the financial futures contract and use the profit to offset higher interest costs29Review of Formulas30
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教學 13 chap chap019 基礎 019 ppt 財務管理
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